For more than eight decades, Social Security has served as a financial foundation for a majority of retirees. More than two decades of annual surveys from Gallup have shown that 80% to 90% of then-retirees lean on their monthly benefit check to cover at least some portion of their expenses.

Considering how important Social Security is to the financial well-being of our nation’s aging workforce, no announcement is more anticipated than the annual cost-of-living adjustment (COLA).

However, adjusting benefits represents just one of the ways America’s top retirement program is altered each year. What follows are the seven must-know changes to Social Security in 2025.

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1. Another above-average COLA is being passed along

Without question, the most-anticipated change for the coming year is the cost-of-living adjustment reveal. COLA is the tool on the Social Security Administration’s (SSA) proverbial tool belt that allows benefits to be adjusted upward to match the prevailing rate of inflation. In simpler terms, COLA is the mechanism used to ensure that beneficiaries don’t lose buying power over time.

On Thursday, Oct. 10, the SSA announced a 2.5% COLA for 2025. Although this represents the lowest “raise” since 2021 for the program’s more than 68 million beneficiaries, it’s modestly above the 2.3% average COLA that had been passed along over the previous 15 years.

For the average retired-worker beneficiary, Social Security checks are set to climb by roughly $49 per month in 2025. Meanwhile, workers with disabilities and survivor beneficiaries can both expect their average payout to rise by $38 per month, respectively.

While another above-average COLA looks great on paper, stubbornly high shelter and medical care services inflation, coupled with Part B premiums forecast to rise at more than twice the rate of the 2025 COLA, suggests a loss of buying power for retirees next year.

2. The rich get richer…

In addition to benefits increasing for all 68 million-plus recipients, Social Security’s “highest earners” will be taking home a beefier benefit.

The Social Security program caps the amount beneficiaries can receive at full retirement age — i.e., the age they become eligible to receive 100% of their retired-worker benefit. In 2024, the maximum a beneficiary could receive each month at full retirement age was $3,822, which was up $195 per month from 2023.

In 2025, this maximum monthly payout at full retirement age is set to climb to $4,018.

In order to qualify for this maximum monthly payout at full retirement age, you’ll need to:

• Work at least 35 years.
• Wait until full retirement age to claim your benefit.
• Reach or surpass the maximum taxable earnings cap for all 35 years taken into account by the SSA when calculating your monthly payout.

3. …But high earners will also be opening their wallets a bit wider

While Social Security’s highest earners will be taking home a larger benefit check in 2025, high-earning workers will be opening their wallets a bit wider thanks to an increase in the aforementioned maximum taxable earnings cap.

In 2023, roughly 91% of the income collected by Social Security came from the 12.4% payroll tax on earned income (wages and salary, but not investment income). This year, all earned income between $0.01 and $168,600 was subject to the payroll tax, with earnings above this level exempt.

This upper bound, known as the “maximum taxable earnings cap,” rises most years in lockstep with the National Average Wage Index. In 2025, all earned income up to $176,100 will be applicable to the payroll tax.

Since 94% of working Americans earn less than the maximum taxable earnings cap, they’re already paying into Social Security with every dollar they earn. But for the roughly 6% of workers expected to surpass this upper bound, it means added payroll tax liability in the new year.

Image source: Getty Images.

4. Early-filer withholding thresholds are rising

Another important change just announced by the SSA gives early filers — workers who claimed their Social Security benefit prior to reaching full retirement age — the ability to hang on to more of their benefits in 2025.

In addition to a permanently reduced monthly benefit, early filers can be exposed to the retirement earnings test. This “test” allows the SSA to withhold some or all of an individual’s benefit, based on how much they earn.

For beneficiaries who won’t reach their full retirement age in 2024, $1 in benefits can be withheld by the SSA for every $2 in earned income above $22,320 ($1,860 per month). Next year, this withholding threshold is rising to $23,400 ($1,950 per month).

Meanwhile, beneficiaries who will reach their full retirement age this year could see $1 in benefits withheld by the SSA for every $3 in earned income above $59,520 ($4,960 per month). In 2025, this income threshold is climbing to $62,160 ($5,180 per month).

Once a beneficiary reaches full retirement age, the retirement earnings test, and thus the ability for the SSA to withhold benefits, no longer applies.

5. Income thresholds to receive disability benefits are climbing, too

On top of early filers being able to potentially hang on to more of their benefits, workers with disabilities will be able to generate more earned income without having their Social Security benefits stopped.

In 2024, non-blind workers with disabilities have been allowed to earn up to $1,550 per month without having their benefits halted, which was up $80 per month from 2023. In the new year, these workers will be allowed to bring home $1,620 per month.

Blind workers with disabilities will see an even larger nominal increase to the amount they can bring home next year without their disability checks being stopped. Following a $130-per-month increase to $2,590 per month in 2024, blind workers with disabilities will be allowed to earn up to $2,700 per month in the upcoming year.

6. The bar to qualify for a Social Security benefit will be incrementally higher

The sixth must-know change is that it’ll be incrementally harder for working Americans to qualify for a Social Security benefit.

Despite what you might have read on the internet, Social Security benefits aren’t a birthright. Rather, they’re almost always earned through work. To qualify, beneficiaries must earn 40 lifetime work credits, of which a maximum of four can be earned in a given year.

However, the bar is set pretty low to receive these lifetime work credits. Workers received a quarter of coverage in 2024 with $1,730 in earned income. Therefore, $6,920 in earned income ($1,730 X 4) would maximize the four lifetime credits that can be awarded this year.

In 2025, the bar to receive a quarter of coverage will modestly increase to $1,810. This means it’ll take $7,240 in earned income to maximize your work credits for the new year.

Taxation of Social Security benefits has become an important source of income for America’s top retirement program. US Old-Age, Survivors, and Disability Insurance Trust Fund Income from Taxation of Benefits Receipts data by YCharts.

7. Your likelihood of being taxed on your Social Security income will rise

The final must-know Social Security change of 2025 isn’t something the SSA announces or will be found on its annual COLA Fact Sheet. Nevertheless, it’s undeniably important to the pocketbooks of retirees.

In 1983, with Social Security’s asset reserves running on fumes, President Ronald Reagan and Congress passed the last major overhaul of America’s top retirement program. The Social Security Amendments of 1983 gradually increased payroll taxation on workers, as well as raised the full retirement age over a four-decade stretch. Most importantly, it introduced the taxation of Social Security benefits.

Beginning in 1984, half of a recipient’s Social Security income became taxable if their provisional income — gross income + tax-free interest + one-half of Social Security benefits — surpassed $25,000 for a single filer or $32,000 for a couple filing jointly.

In 1993, the Clinton administration added a second tier that exposed up to 85% of benefits to federal taxation if provisional income topped $34,000 for single filers and $44,000 for couples filing jointly.

Here’s the catch: None of these thresholds have been adjusted for inflation since going into effect four and three decades ago, respectively. With each passing cost-of-living adjustment, a growing number of beneficiaries are being exposed, in some capacity, to the taxation of benefits.

With Social Security staring down an estimated $23.2 trillion funding shortfall through 2098, as well as the possibility of sweeping benefit cuts by 2033, the taxation of benefits is something of a necessary evil.

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